Australia is a major producer and exporter of natural resources and energy, food and agricultural commodities, education and tourism. We also export many other goods and services globally.

Regardless of what you are exporting, there are several aspects to understand and consider – from trade structuring to the currency in which your trade is denominated, to payment protections employed.

Let’s review some essential background knowledge and then provide some suggested tips.

Capital vs current account

A number of countries globally still have closed capital accounts, but open current accounts. It is important to distinguish the nature of a payment when addressing this issue.

Countries with a closed capital account and an open current account restrict capital payments and receipts (loan repayments, foreign investments, capital injections into a business etc), but allow current account payments such as international trade transactions supported by appropriate documentation. Capital payments and receipts in such countries generally require approval from a foreign exchange regulator.

Currency

Some currencies are restricted to domestic trading only, but remain hedgeable. An example, is the Chinese currency – known on the China mainland as Chinese yuan (CNY) and outside the mainland as CNH – the ‘H’ notionally stands for ‘Hong Kong’, but really means Chinese currency anywhere outside the mainland. CNH foreign exchange risk can be hedged by Chinese and global banks just the same as mainstream global currencies such as the USD, EUR, GBP, JPY and AUD.

Whilst it is generally easier for Australian businesses to structure their trade in Australian dollars (AUD) to remove any currency risk, naturally it is always easiest for a foreign importer to pay in their own currency and this can sometimes secure an exporter a better price, given the convenience for the importer of not having to manage foreign exchange risk.

Tips for successful export relationships

While many of our clients know to engage us to assist with establishment of their offshore operations, we also have clients engage us after they’ve learnt some hard lessons. As always, the key is to surround yourself with experienced advisors and do your homework on any proposed business partners.

1. Due diligence is even more important

Resist the temptation to be blinded by the size of the deal or the size of the market you are entering!

When a foreign company doing business offshore enters into a new business relationship, a common mistake is a failure to undertake the same due diligence as the company would do in their home country.

All countries have different laws, regulations and norms of doing business, so it’s important to engage local expertise and advisors who understand the market to undertake physical, online, regulatory and financial background checks on who you are dealing with prior to entering into new business arrangements.

In some countries an internet search in English won’t help you. Two key reasons:

• search engines such as Google are blocked in a number of foreign jurisdictions
• for non-English speaking countries, you need to conduct searches on local entities or individuals in the local language, rather than English, to get an optimal result.

The key here, is to do the same or more due diligence on your business partner offshore than you would at home. If you are experiencing hurdles, we can assist.

2. The right payment structures can assist

International trade is conducted based on a continuum of trust. If you don’t know who you are dealing with, put payment protection mechanisms in place with providers that you trust.

Think about how you structure your trade:

• currency used – offering your purchaser trade terms denominated in their local currency can potentially secure better pricing and enhance your chances of being paid in timely fashion. Banks can help to hedge foreign exchange risk for widely used currencies.
• payment terms – seek whole or part payment up front, or at least staggered payments that stay ahead of the value provided over the contract period to help mitigate your payment risk.
• consider the use of Letters of Credit (and consider who the counterparty bank providing the Letter of Credit is).  This adds an additional layer of payment protection from your client’s bank.
• consider additional layers of protection – Letter of Credit confirmations, export credit insurance, standby letters of credit for services trade, bank performance guarantees if clear contractual performance criteria can be established and agreed.  This adds an additional layer of payment protection from either your client’s bank, or your bank.
• Importing and exporting? If you have incomings and outgoings in the same foreign currency, consider creating a natural hedge by opening a foreign currency account, thereby obviating the need for currency conversion.

If you’re experiencing debtor payment problems, understand clearly the reason why you aren’t getting paid:

• is the counterparty not creditworthy?
• does the counterparty have cashflow problems that are ‘point in time’, meaning they can pay you later?
• is your documentation incorrect? In some countries, local laws won’t allow the counterparties you are dealing with to pay you if you have not provided the correct supporting documents
• have you invoiced in AUD or USD, and the business you are contracting with can’t buy or remit foreign currency?

Your bank can assist you to ensure your trade documentation efficacy, with opening foreign currency accounts and with other foreign exchange hedging mechanisms.

4. Do what the big exporters do

Sometimes businesses think that the nature of the product they are exporting – perishable versus non-perishable – impacts the mechanisms that can be utilised to assist secure payment. This is incorrect.

Further, structuring of the trade payment security mechanisms of physical goods export activity should be no different for a smaller business than those utilised by the world’s biggest exporters, regardless of product type.

Where it is not feasible to seek payment up front, there are three ways that the world’s biggest exporters try to ‘guarantee’ payment for their exports to countries where payment certainty is more challenging:

1. Primary payment obligation rests with the importing party
2. Letter of Credit (bank guarantee of payment) issued in their favour – you’ll want this from one of the major international or local banks
3. ‘Confirmation’ on the Letter of Credit from one of their trade panel banks, or their house bank. This effectively substitutes the credit rating of their trade panel or house bank for the credit rating of the purchaser’s bank. In essence, in this example, it’s saying that if the importer doesn’t pay and the purchaser’s bank doesn’t pay, then the exporter’s bank must pay – if the trade documentation is correct.

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The COVID-19 pandemic is disrupting business around the globe to differing degrees, and the situation is changing daily.

Exporters are advised to keep abreast of the situation in various locations by using the links below, relying on trusted partners in local markets, or by contacting Austrade on 13 28 78 and following the prompts for ‘Export enquiries’ (within Australia).

Austrade recommends that you:

• Stay in contact with your customers and partners; communicate on a regular basis as far as possible. Be aware there is a likelihood that the customer’s business is being heavily impacted as well.
• Stay in touch with your peak industry body.
• Be aware that many events are being cancelled or rescheduled.
• Prepare a plan for when the pandemic effects ease so you can scale up delivery and promotion of your product or service.
• Note the latest Australian Government Travel Advice and travel restrictions in place, which are there for your safety.

Click here for the latest insights from Austrade’s global network.

Get in touch

The post Austrade’s latest COVID-19 updates for exporters appeared first on SW Accountants & Advisors.

Supported by Austrade, Efic and Export Council Australia, our experts will provide practical tips and case studies for how best to navigate export opportunities to maximise your export potential with the right partners.

Benefits of attending

• Hear from and engage with experts that specialise in supporting Australian businesses who import/export new and existing products and services
• Network and build connections with expert partners
• Be informed of the latest support opportunities available for financial assistance
• Keep updated on the latest opportunities for state government awards that are provided
• Uncover what China is looking to achieve with its first ever China International Import/Export Expo show in November

Brisbane event details

Date: Thursday, 30 August 2018
Time: 12.00pm-2.30pm (lunch and refreshments provided)
Venue: ShineWing Australia, Riparian Plaza, 71 Eagle Street, Brisbane QLD 4000
Format: Interactive seminar style
RSVP: Monday, 20 August 2018 to marketing@shinewing.com.au

Melbourne event details

Date: Monday, 27 August 2018
Time: 12.00pm-2.30pm (lunch and refreshments provided)
Venue: ShineWing Australia, Level 10, 530 Collins Street, Melbourne VIC 3000
Format: Interactive seminar style
RSVP: Monday, 20 August 2018 to marketing@shinewing.com.au

Sydney event details

Date: Friday, 24 August 2018
Time: 12.00pm-2.30pm (lunch and refreshments provided)
Venue: ShineWing Australia, Level 8, 167 Macquarie Street, Sydney NSW 2000
Format: Interactive seminar style
RSVP: Monday, 20 August 2018 to marketing@shinewing.com.au

More information

For more information, please contact the ShineWing Australia Marketing team via marketing@shinewing.com.au.

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This outlines 30 recommendations to strengthen Australia’s innovation performance through to 2030. We are pleased to see recommended increases to the Export Market Development Grant program. In addition, the plan recommended the below changes to the R&D Tax Incentive program. This follows the government commissioned Ferris, Finkel and Fraser (FFF) review of the R&D Tax Incentive program in September 2016.

• Cap the cash refund amount at $4m per year for refundable claimants (with a cumulative refund of $40m per company)
• A company must spend at least 1% of its total costs on eligible R&D in order to qualify. It would be a trigger event at which point, everything can be claimed.

They also re-iterated their support for the remaining FFF review recommendations, namely:

• Maintain the current definition of R&D (activities and expenses) but develop new and improve guidance materials
• A collaboration premium of 20% should be introduced for non-refundable claimants to engage universities and research institutions
• Review options to improve the administration of the program.

None of these recommendations are guaranteed to become law. The government still needs to respond to the report and implement any changes through the traditional parliamentary processes.

One further interesting insight in the report was ISA’s view that only very limited innovative software development activities qualify for the R&D Tax Incentive. With new IT specific industry guidance expected from AusIndustry in the coming months, it will be interesting to see if ISA, AusIndustry and the ATO have changed their view of IT R&D activities since the program started in 2011. We will of course keep you updated with any changes as they develop.

To view the full report, click here.

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